Refurbished colleges face pound;1bn debt

11th July 2008 at 01:00
Campuses are under pressure to get greener but it's making the accountants see red

Campuses are under pressure to get greener but it's making the accountants see red

A debt of pound;1 billion looms large for colleges as they continue to press on with a national campus modernisation and rebuilding programme.

The pound;731 million credit burden - an average of pound;1.9m for each of England's 376 colleges - is destined to increase further as colleges continue to borrow to cover the cost of new environmentally friendly buildings to replace facilities built in the 1960s and 1970s.

Within two years, based on current trends, colleges are expected to owe more than pound;1 billion.

A National Audit Office (NAO) report raises concerns about the impact on college budgets as the economy faces recession, partly driven by the global credit crunch.

Learning and Skills Council grants are available for capital projects but most of the money for the renewal programme so far has been raised by colleges through the sale of assets and loans.

They face the pressure of maintaining repayments from a potentially reduced income as a result of the economic slowdown, the effect of competition in post-16 education and changes in funding arrangements, including the winding up of the LSC in 2010.

The council's aim was to see every college rebuilt or modernised by 2016. Already, further education has been given buildings of a high standard as a result of the programme, with the knock-on effect of improved student performance.

To date, the NAO has not found any colleges reporting financial difficulties arising from the debts, but it says some principals have admitted the burden could become unmanageable in the long term.

In its report, Renewing the Physical Infrastructure of English Further Education Colleges, the NAO says some smaller colleges could struggle if demand for courses falls. The stalling economy already threatens to lead to fewer apprenticeships as some employers become reluctant to commit to recruits requiring college training.

The number of colleges in a weak financial state, as judged by the LSC, grew from 68 to 89 in 2006-07. Their total long-term loans has risen from pound;200m to pound;731m since 2001, when the LSC was created. Interest payments alone for 2006-07 were pound;58m.

The NAO report said: "Whilst colleges can generally afford to service the loans they take out, they are vulnerable to changes in their income. In the context of a changing and increasingly competitive sector, some college finance directors are concerned about colleges' ability to meet loan and interest repayment in the long term."

Some more specialist colleges feel particularly vulnerable, it says.

Thirty-eight colleges examined by the NAO went over-budget with their building work - 11 of them by more than 10 per cent of the predicted costs. Many colleges also underestimate the initial running costs of new buildings, despite the emphasis on architecture aimed at reducing energy consumption.

Leading article, page 4.

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